Bridging finance is a unique funding option for property investors and businesses who need immediate cash flow. Whether you’re buying a new home while waiting for another transaction to finalize, bridge finance gives the cash flow needed to close deals. Here’s everything you need to know about bridging finance.
Understanding Bridge Loans
Bridge loans is a type of temporary financing that bridges the gap between two financial transactions. Typically, bridging finance is applied to secure financing for a business investment before existing funds being released.
Types of Bridging Loans
There are two standard forms of bridging loans:
Closed Bridge Loans – This type of financing are designed with a fixed end date. Closed loans are preferred when there’s certainty for the next source of capital.
Open Bridging Finance – This type of bridge loan does not have a predetermined repayment deadline. These loans are perfect for those unsure of when funds will arrive.
Understanding the Functioning of Bridge Loans
In using bridging finance, the lender assesses the value of the prospective investment and existing real estate. Typically, bridging finance uses the value of both properties.
Essential Stages in Bridging Finance
Initial Application – Submit a detailed application about the financial gap.
Property Valuation – The lender reviews the property to determine the market price.
Securing Approval – After underwriting, funds are made available.
Repayment – You settle the bridge loan as soon as the sale completes.
Why Use Bridge Loans?
Bridge financing provides key perks:
Fast Access to Funds – Compared to standard loans, funds are available almost immediately.
Adaptability – Bridge loans can be tailored to match individual requirements.
Make the Most of Time-Sensitive Deals – With bridge finance, you can act swiftly when opportunities arise.
Challenges of Bridging Finance
While useful, bridging loans does have some risks:
High Interest Rates – Rates on these loans are often higher than traditional loans.
Short Repayment Terms – You’ll often have less time to repay development finance.
Potential Loss of Property – When defaults occur, the property can be taken.
Who Should Use Bridging Finance?
Bridging loans are a great option for:
House Flippers – Who need quick funds.
People Moving Home – For flexibility during moves.
Companies in Capital Needs – To keep cash flow stable.
How to Choose the Right Bridging Loan
Review Rates – Compare the pricing structure to get a fair deal.
Look at Duration – Determine if the timeline is practical.
Evaluate Additional Costs – Application and exit fees can add up.
Choose a Reputable Lender – Ensure your financer is established.
Bridging Finance FAQs
What can bridging finance be used for?
Primarily for property purchases, but it can also be used for business needs.
How long is bridge financing available?
Typically between 6 to 12 months, though it varies.
Is it hard to get a bridge loan?
Equity in existing assets and clear plans are typically required.